United States currency and contracts placed as a result of such formal competitive bidding shall not be subject to adjustment for losses or gains resulting from fluctuation in exchange rates.

4. The Military Departments and the Corporation shall avoid, to the extent consistent with the declared policies of the Military Departments and the Canadian Government, the making of any surcharges covering administration costs with respect to contracts placed with the Corporation by any of the Military Departments and contracts placed by the Military Departments in the United States for the Canadian Government.

5. To the extent that contracts placed with the Corporation by the Military Departments provide for the audit of costs and profits, such audit will be made without charge to the Military Departments by the Cost Inspection and Audit Division of the Treasury of Canada in accordance with Costing Memorandum Form DDP-31 of the Department of Defence Production, Canada.

6. The Canadian Government shall arrange for inspection personnel of the Department of National Defence (Canada) to act on behalf of the Military Departments with respect to contracts placed by the Military Departments with the Corporation and with respect to subcontracts placed in Canada by United States contractors which are performing contracts for the Military Departments, and for the use of inspection facilities of the Department of National Defence (Canada) for such purposes, such personnel and facilities to be provided without cost to the Military Departments. The Military Departments shall provide and make no charge for inspection services and inspection facilities in connection with contracts placed in the United States by the Military Departments for the Canadian Government and with respect to subcontracts placed in the United States by Canadian contractors which are performing contracts for the Department of Defence Production (Canada). The Department of National Defence (Canada) or any Military Department may provide liaison with the other's inspection personnel in connection with the foregoing. It is understood that either the Department of National Defence (Canada) or any Military Department may in appropriate cases arrange for inspection by its own inspection organization in the other's country.

7. Because of the varying arrangements made by the Canadian Government and the Military Departments in furnishing Government-owned facilities (including buildings and machine tools) to contractors, it is recognized that the matter of inclusion in contract prices of charges, through amortization or otherwise, for use of such facilities will be determined in the negotiation of individual contracts. However, there shall be avoided, to the extent consistent with the policies of the Canadian Government and Military Departments, any such charges for use of Government-furnished facilities.

8. (a) The Corporation agrees that the prices set out in fixed-price type contracts covered by this Agreement will not include any taxes with respect to first-tier subcontracts; nor shall prices include custom duties to the extent refundable in accordance with Canadian law, paid upon the import of any materials, parts, or components incorporated or to be incorporated in the supplies, with respect to first-tier subcontracts.

(b) The Corporation agrees that under cost-reimbursement type contracts the Corporation shall, to the extent practicable with respect to first-tier subcontracts, exclude from its claims all taxes and to the extent refundable in accordance with Canadian law, customs duties, paid upon the import of any materials, parts, or components, incorporated or to be incorporated in the supplies and that any amounts included in such claims representing such taxes and duties shall be refunded or credited to the Military Departments.

(c) The Corporation agrees that to the extent that such taxes and duties can be reasonably and economically identified it will use its best endeavors to cause such taxes and duties to be excluded from all subcontracts below the first-tier and if found to be inIcluded to be recoverable and credited to the Military Departments.

9. The Corporation recognizes that existing law of the United States prohibits the use of the cost-plus-a-percentage-of-cost system of contracting.

10. Each contract covered by this agreement shall be deemed to include the provisions required by (1) Public Law 245, 82d Congress of the United States (65 Stat. 700; 41 U.S.C. 153 (c)) and (ii) Section 719 of Public Law 458, 83d Congress of the United States (68 Stat. 353) or similar provisions that may ba required by subsequent legislation.

[25 F.R. 14171, Dec. 31, 1960, as amended at 26 F.R. 5307, June 14, 1961; 28 F.R. 4885, May 16, 1963]

§ 6.504 Mutual Canadian-American in

terests.

Because of the close geographical proximity of the United States and Canada and of the mutual interest of both nations in the defense of North America, various steps have been taken during and since World War II to coordinate their economic efforts in the common defense, so as to achieve:

(a) Greater integration of military production,

(b) Greater standardization of military equipment,

(c) Wider dispersal of production facilities,

(d) Establishment of supplemental sources of supply, and

(e) Greater flow of defense supplies and equipment between the two countries.

Accordingly, it is Department of Defense policy to seek the best possible coordination of the materiel programs of Canada and the United States and to assure Canada a fair opportunity to share in the production of military equipment and materiel involving programs of mutual interest to Canada and the United States and in the research and development connected therewith. Accomplishment of these purposes required the allevation of the restrictions of the Buy American Act with respect to procurements for public use of supplies mined, produced, or manufactured in Canada in the manner prescribed in Subpart A of this part. [25 F.R. 14171, Dec. 31, 1960]

$ 6.505 Contract administration.

When services are requested from the Defense Contract Administration Services on contracts to be performed in Canada, the requests shall be directed to:

Defense Contract Administration

Services

Region, Detroit, 1580 East Grand Boulevard, Detroit, Mich. 48211.

[30 F.R. 12005, Sept. 21, 1965]

Subpart F-Duty and Customs

SOURCE: The provisions of this Subpart F appear at 27 F.R. 1705, Feb. 22, 1962, except as otherwise noted.

§ 6.601 Scope of subpart.

(a) This subpart sets forth policies and procedures for excepting from import duty certain supplies that are imported into the United States in connection with Defense contracts. Ordinarily, duty is payable for the importation of supplies obtained outside the United States. Two exceptions to this rule are available to the Department of Defense: "emergency purchases of war materials abroad" by a Military Department may be imported duty-free pursuant to Schedule 8, Part 3, Item No. 832, Tariff Schedules of the United States, and certain supplies (not including equipment) for vessels or aircraft operated by the United States may be imported duty-free pursuant to 19 U.S.C. 1309. This subpart prescribes the uses and limits of these two exceptions.

(b) This subpart does not deal with or affect the evaluation of bids or proposals offering foreign supplies. Rules for such evaluation are in Subparts A through C of this part. Although the

procedures of this subpart may require or permit duty-free entry to be accorded foreign supplies in a given case, this in itself neither precludes nor requires the inclusion of duty in evaluating a bid offering such supplies.

[27 F.R. 1705, Feb. 22, 1962, as amended at 29 F.R. 14820, Oct. 31, 1964]

§ 6.602 Policy.

The issuance of duty-free entry certificates in appropriate situations will result in important savings to military appropriations. Such certificates must be limited to carefully selected situations lest they result in unanticipated profits to contractors, especially under fixedprice type contracts, and involve the Government in administrative expenses outweighing any possible savings to military appropriations. It is Defense policy to use duty-free entry certificates whereever there is reasonable assurance that advantages in the form of savings to military appropriations will outweigh the administrative and other costs of processing duty-free entry certificates and of maintaining controls to verify that the full benefit of the certificates inures to the Government.

§ 6.603 Emergency purchases of war materials abroad.

(2) Agricultural, industrial, or other supplies used in the prosecution of war or for the national defense; or

(3) Supplies, including components or equipment, necessary for the manufacture, production, processing, repair, servicing, or operation of supplies within subparagraphs (1) or (2) of this paragraph;

(b) The procurement:

(1) Is made in time of war or during a national emergency;

(2) Is made because of a shortage of domestic supply, pursuant to a decision that the supplies are necessary for the adequate maintenance of the Armed Services;

(3) Is made for the use of United States forces abroad or United States vessels in foreign waters; or

(4) Consists of captured enemy war material, materials requistioned by

(a) To assure that the policy of § 6.602 is carried out for emergency purchases of war materials abroad, one or both of the clauses in § 6.603-3 shall be included in each negotiated contract in excess of $100,000 unless the minimum dollar limits in § 6.603-3 (a) and (b), respectively, apply. Notwithstanding these dollar limits, either or both of the clauses in § 6.603-3 may be inserted in any other negotiated contract where the contracting officer determines that to do so would further the policy in § 6.602 and would be consistent with the limitations in paragraph (c) of this section, and in any such case the dollar figures in paragraph (a) and (c) of the clause in § 6.603-3(b) may be reduced appropriately.

(b) The requirements in paragraph (a) of this section are in addition to and independent of the requirements in § 6.605 concerning duty-free entry clauses for Canadian supplies.

(c) Duty-free entry certificates shall be issued as required by contracts containing any of the contract clauses described in §§ 6.603-3 and 6.605. Consistent with § 6.602, duty-free entry certificates may be issued in connection with any other contract for an "emergency purchase of war material" that falls within one of the following categories:

(1) Direct purchases abroad regardless of whether title passes at point of origin or at destination in the United States, providing the contract states that the final price is exclusive of duty;

(2) Purchases abroad by a Government prime contractor under a cost-reimbursement type contract or by a costreimbursement type subcontractor (where no fixed-price prime or fixedprice subcontract intervenes between the purchaser and the Government), regardless of whether title passes at point of origin or at destination in the United States. If a fixed-price prime or fixedprice subcontract intervenes, the criteria stated in subparagraph (3) of this paragraph should be followed; and

(3) Purchases abroad by a fixed-price contractor, fixed-price subcontractor, or cost-type subcontractor where a fixedprice prime, or fixed-price subcontract

intervenes, provided (i) the fixed-price prime and, where applicable, fixed-price subcontract prices are, or are amended to be, exclusive of duty; (ii) the prime contractor and, where applicable, the subcontractors concerned certify that the supplies so purchased are to be delivered to the Government or incorporated in Government-owned property or in an end product to be furnished to the Government, and that the duty will be paid if such supplies or any portion thereof are utilized for other than the performance of the Government contract or disposed of other than for the benefit of the Government in accordance with the contract terms; and (iii) such procurement abroad is authorized by the terms of the prime contract, the applicable subcontract, or by the contracting officer.

In any such case the procedures required by the clauses in § 6.603-3 and by § 6.603-4 shall be followed to the extent practicable.

§ 6.603-3 Contract clauses.

(a) Duty-free entry for designated items. Within the limits of § 6.603-2(a) the following clause shall be used where the contracting officer definitely knows at the time of execution of the contract that foreign supplies (other than those for which duty-free entry is to be accorded pursuant to a clause authorized by 6.605), on which the estimated aggregate duty exceeds $1,000, are to be imported into the United States, its possessions, or Puerto Rico, in connection with performance of the contract.

DUTY-FREE ENTRY FOR CERTAIN SPECIFIED ITEMS (Nov. 1981)

(a) Except as otherwise approved by the Contracting Officer, no amount is or will be included in the contract price on account of duty with respect to those supplies that are specifically identified in the schedule as supplies to be accorded duty-free entry.

(b) The Contractor warrants that all such supplies for which duty-free entry is to be claimed are intended to be delivered to the Government or incorporated in the end items to be delivered under this contract, and that duty shall be paid by the Contractor to the extent that such supplies, or any portion thereof (if not scrap or salvage), are diverted to nongovernmental use other than as a result of a competitive sale made, directed or authorized by the Contracting Officer.

(c) The Government agrees to execute duty-free entry certificates and to afford such assistance as appropriate in order to obtain the duty-free entry of supplies as to

which the shipping documents bear the notation specified in paragraph (d) below, except as the Contractor may otherwise agree.

(d) All shipping documents submitted to Customs, covering those supplies that are specificially identified in the Schedule as supplies to be accorded duty-free entry, shall bear the following information:

(1) Government prime contract number; (11) Identification of carrier;

(iii) the notation: "UNITED STATES (insert name of Military Department)-DUTYFREE ENTRY TO BE CLAIMED pursuant to Schedule 8, Part 3, Item No. 832, Tariff Schedules of the United States. Upon arrival of shipment at port of entry, Collector of Customs, kindly notify the (insert title and address of Government representative), who will execute Customs Forms 7501 and 7501A and the Duty-Free Entry Certificate.";

(iv) Gross weight in pounds (if freight is based on space tonnage, state cubic feet in addition to gross shipping weight); and (v) Estimated value in United States dollars.

(e) The Contractor agrees to instruct the foreign supplier to prepare a sufficient number of copies of the bill of lading (or other shipping document) so that at least two of the copies accompanying the shipment will be available for use by the Collector of Customs at the port of entry. The foreign

supplier shall also be instructed to forward, at the time of shipment, a memorandum copy of the bill of lading (or other shipping document) to the designated Government representative.

(f) The Contractor will make appropriate provisions in subcontracts hereunder to assure that the entire substance of this clause is agreed to by each first- or lower-tier subcontractor, if any, who will import into the United States, its possessions, or Puerto Rico, supplies identified in the Schedule as supplies to be accorded duty-free entry.

(b) Duty-free entry for items not identified in the contract. Within the limits of § 6.603-2(a), the following clause shall be used unless the contracting officer anticipates that, in connection with the performance of the contract, neither the prime contractor nor any first-tier subcontractor will make any purchase of foreign supplies in excess of $10,000 that would not be covered either by the clause in paragraph (a) of this section or by a clause authorized by § 6.605.

NOTICE OF IMPORTS-POSSIBLE DUTY-FREE ENTRY (SEPT. 1964)

(a) Except as provided in paragraph (c) below, the Contractor shall notify the Contracting Officer in writing of any purchase in excess of $10,000 by the Contractor of foreign supplies (including without limitation raw materials, components, and intermediate assemblies) that are to be imported

into the United States, its possessions, or Puerto Rico, for delivery to the Government, or for incorporation in end items to be delivered to the Government, under this contract; Provided, That if this contract contains any other clause providing for duty-free entry, such notice is not required for any supplies that are to be accorded duty-free entry under any other such clause. Any such notice shall be furnished to the Contracting Officer at least twenty (20) days before the importation of any supplies pursuant to any such purchase. The notice shall identify (1) the foreign supplies, (ii) the estimated amount of duty payable thereon, and (111) the country of origin.

(b) If, within ten (10) days of receipt of any notice under (a) above, the Contracting Officer notifies the Contractor in writing that the Government will issue duty-free entry certificates for such foreign supplies, or if the Government otherwise tenders and the Contractor agrees to the issuance of such a duty-free entry certificate, the following subparagraphs shall apply:

(1) Except as otherwise approved by the Contracting Officer, the contract price shall be reduced by (or the allowable cost shall not include) the amount of duty which would be payable if duty-free entry certificates were not issued pursuant to the provisions of this clause.

(2) The Contractor warrants that all such foreign supplies for which duty-free entry certificates are to be issued in accordance with this clause are intended to be delivered to the Government or incorporated in end Items to be delivered under this contract, and that duty shall be paid by the Contractor to the extent that such supplies, or any portion thereof (if not scrap or salvage), are diverted to non-governmental use other than as a result of a competitive sale made, directed or authorized by the Contracting Officer.

(3) The Government agrees to execute duty-free entry certificates and to afford appropriate assistance in order to obtain the duty-free entry of such foreign supplies as to which, pursuant to subparagraph (4) below, the shipping documents bear the notation specified therein, except as the Contractor may otherwise agree.

(4) All shipping documents submitted to Customs, covering foreign supplies for which duty-free entry certificates are to be issued in accordance with this clause, shall bear the following information:

(1) Government prime contract number; (11) Identification of carrier;

(iii) the notation: "UNITED STATES (insert name of Military Department)-DUTYFREE ENTRY TO BE CLAIMED pursuant to Schedule 8, Part 3, Item No. 832, Tariff Schedules of the United States. Upon arrival at port of entry, Collector of Customs kindly notify the (insert title and address of Government representative), who will execute

Customs Forms 7501 and 7501A and the Duty-Free Entry Certificate.":

(iv) Gross weight in pounds (if freight is based on space tonnage, state cubic feet in addition to gross shipping weight); and value in (v) Estimated United States dollars.

(5) The Contractor agrees to instruct the foreign supplier to prepare a sufficient number of copies of the bill of lading (or other shipping document) so that at least two of the copies accompanying the shipment will be available for use by the Collector of Customs at the port of entry. The foreign supplier shall also be instructed to forward, at the time of shipment, a memorandum copy of the bill of lading (or other shipping document) to the designated Government representative.

(c) This clause shall not apply to purchases of foreign supplies in connection with this contract if (1) such foreign supplies are identical in nature with supplies purchased by the Contractor or any subcontractor hereunder in connection with his commercial business, and (11) segregation of such supplies to insure use only on Government contracts containing duty-free entry provisions is not economical or feasible.

(d) The Contractor agrees to insert the substance of this clause in any first-tier subcontract hereunder in connection with which foreign supplies in excess of $10,000 may be imported by the subcontractor into the United States, its possessions, or Puerto Rico.

[27 F.R. 1705, Feb. 22, 1962, as amended at 29 F.R. 14820, Oct. 31, 1964]

§ 6.603-4 Customs entries and duty-free

certificates.

(a) When the clause set forth in § 6.603-3 (a) or (b) is used, the title and address of the Government representative responsible for preparing the Consumption Entry (Customs Form 7501) and Consumption Entry Permit (Customs Form 7501A) and executing the duty-free certificate shall be included in such clause.

(b) When the Government agrees to execute duty-free entry certificates for supplies, in accordance with the clauses set forth in § 6.603-3 or authorized by § 6.605, the contractor shall be notified that the foreign supplier is to include on the bill of lading (or other shipping document) the information required to be inserted on such documents as provided in the clause. Failure to include such information on the bill of lading (or other shipping document) will result in the shipment being treated as a shipment without benefit of free entry under

Schedule 8, Part 3, Item No. 832, Tariff Schedules of the United States.

(c) The designated Government representative shall, except as provided in paragraph (e) of this section, retain the memorandum copy of the bill of lading (or other shipping document) pending notification by the Collector of Customs that the shipment has been released. The notification will contain a request for Customs Form 7501, Customs Form 7501A, and the duty-free entry certificate.

(d) Upon receipt of a request for duty-free entry, the designated Government representative shall promptly prepare the required customs forms and execute the duty-free entry certificate in accordance with paragraph (f) of this section and forward two copies of Customs Form 7501 and one copy of Customs Form 7501A to the Collector of Customs submitting the request.

(e) When the designated Government representative is located in a Canadian supplier's plant, he shall be authorized to prepare Customs Form 7501, and Customs Form 7501A and to execute the duty-free entry certificate thereon. These Customs Forms shall be placed in a sealed envelope addressed to the "Collector of Customs, Port of Entry" and shall be securely attached to the two copies of the bill of lading (or other shipping document) for the Collector of Customs, which accompany the shipment.

(f) The duty-free entry certificate referred to in this paragraph shall be printed, stamped, or typed on the face of Customs Form 7501 or attached thereto in the following form:

SEPTEMBER 1964.

I certify that the procurement of this material constituted an emergency purchase of war material abroad by the (indicate Department of the Army, Department of the Navy, Department of the Air Force, or Defense Supply Agency) and it is accordingly requested that such material be admitted free of duty pursuant to Schedule 8, Part 3, Item No. 832, Tariff Schedules of the United States.

(Name)

(Title), who has been designated to execute free entry certificates for the above named (Department or Agency)

(Organization)

[27 F.R. 1705, Feb. 22, 1962, as amended at 29 F.R. 14820, Oct. 31, 1964]